IBM Puts a Cap on CB Exposure – But Still Plans Cooper
Appeal

September 29, 2004 (PLANSPONSOR.com) - IBM announced
yesterday that it has agreed in principle with plaintiffs to
resolve certain claims in the class action lawsuit relating
to its cash balance pension plan, Cooper et al v. The IBM
Personal Pension Plan and the IBM Corporation.

The settlement caps what IBM and its pension plan
ultimately will have to pay, although IBM said it still
expects to appeal two aspects of the ruling pertaining to
age-discrimination claims to the Seventh Circuit Court of
Appeals. If IBM wins on the remaining claims – and it
remains confident that it will prevail, according to a
press release – it will pay only the $300 million portion
agreed to in the settlement, a figure that includes
plaintiff’s attorneys fees).
If unsuccessful, IBM’s potential liability for the claims
being appealed is capped at $1.4 billion.

Appeal Plans

However, IBM will appeal the cash balance pension plan
claims to the Seventh Circuit Court of Appeals and believes
it is likely to be successful on appeal, according to a
press
release
.
The agreement, still subject to final approval by the Court
after notice to the class, provides that plaintiffs would
be eligible to receive an incremental pension benefit worth
approximately $300 million (which includes plaintiffs’
attorneys fees to be determined by the Court) in exchange
for the settlement of certain claims and a stipulated
remedy in the event that IBM loses the remaining cash
balance claims on appeal. Under the stipulated remedy,

In announcing the settlement, IBM said it continues to
believe that its pension plan formulas are fair and legal,
and that the firm reached this agreement in the interest of
the business and its shareholders, and to allow for a
review of its cash balance formula by the Court of Appeals.
IBM noted that there are more than 1,200 U.S. cash balance
and related plans in operation today that would be deemed
illegal under the rulings in the Cooper case (see
Murphy’s Law: IBM Loses Cash Balance Ruling
).

Cash balance pension formulas are defined benefit plans
that provide the employee with interest credit from the
moment a retirement benefit is earned until it is taken.
IBM claims that although employees under IBM’s plan earn
interest credits at the same rate regardless of their age,
the U.S. District Court for the Southern District of
Illinois ruled that IBM’s cash balance formula is unlawful
because a younger employee will earn more years of interest
by the time he becomes age 65 than an older employee.

Potential Implications

The Cooper case is being watched intently because of its
potential implications for other major corporations where
employees have complained that pension and health care
benefits were reduced in corporate cost-cutting moves (See
One Bad Apple
). Companies in addition to IBM that moved to
“cash-balance” pension plans in the 1990s include Eastman
Kodak Co. and Electronic Data Systems Corp.

Earlier this summer, in a direct refutation of the US
District Court of Southern Illinois ruling in Cooper v.
IBM, US District Judge Catherine Blake of the US District
Court for the District of Maryland read ERISA’s
age-discrimination provisions as being applicable only to
employees who have reached normal retirement age. Thus, in
Tootle v. ARINC Inc, Blake found ERISA’s age-discrimination
provisions “do not bar all cash balance plans.”
(see
Tootle Do?
)

Plan sponsors hoping for a legislative solution to the
judicial logjam were thwarted again last week when the US
House of Representatives approved an amendment to the
Treasury Department’s funding bill for the third time that
would prevent it from helping to overturn the decision in
Cooper (see
House Approves Measure Blocking Treasury Cash Balance
Intervention
).
The amendment was sponsored by Representative Bernie
Sanders (I-Vermont), a long-time and vocal critic of the
cash balance programs.